-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WI0dnJXQs5huCaBWDEY0UHQ1N6SacHG/dfFEQZyhgW9Q2Ok9JyzzoEneU4tIrFe+ NlZmbzeQEI/cd8MZmY3WNw== 0000950123-09-006359.txt : 20090409 0000950123-09-006359.hdr.sgml : 20090409 20090409171715 ACCESSION NUMBER: 0000950123-09-006359 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20090131 FILED AS OF DATE: 20090409 DATE AS OF CHANGE: 20090409 EFFECTIVENESS DATE: 20090409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY STRATEGIST FUND CENTRAL INDEX KEY: 0000837529 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05634 FILM NUMBER: 09743511 BUSINESS ADDRESS: STREET 1: 522 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 800-869-6397 MAIL ADDRESS: STREET 1: 522 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER STRATEGIST FUND DATE OF NAME CHANGE: 19980622 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER STRATEGIST FUND DATE OF NAME CHANGE: 19920703 0000837529 S000002380 Morgan Stanley Strategist Fund C000006287 A SRTAX C000006288 B SRTBX C000006289 C SRTCX C000006290 I SRTDX C000055345 Class R C000055346 Class W N-CSRS 1 y74551nvcsrs.htm FORM N-CSRS N-CSRS
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05634
Morgan Stanley Strategist Fund
(Exact name of registrant as specified in charter)
     
522 Fifth Avenue, New York, New York   10036
(Address of principal executive offices)   (Zip code)
Randy Takian
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant’s telephone number, including area code: 212-296-6990
Date of fiscal year end: July 31, 2009
Date of reporting period: January 31, 2009
 
 
Item 1 — Report to Shareholders

 


 

     
     
INVESTMENT MANAGEMENT
  [MORGAN STANLEY LOGO]
 
 
Welcome, Shareholder:
 
In this report, you’ll learn about how your investment in Morgan Stanley Strategist Fund performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund’s financial statements and a list of Fund investments.
 
 
This material must be preceded or accompanied by a prospectus for the fund being offered.
 
 
Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund’s shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. Please see the prospectus for more complete information on investment risks.


 

Fund Report
 
For the six months ended January 31, 2009
 

 
Total Return for the 6 Months Ended January 31, 2009
 
                                     
 
                                    Lipper
                              Barclays
    Flexible
                        S&P
    Capital U.S.
    Portfolio
                        500®
    Government/
    Funds
Class A     Class B     Class C     Class I     Index1     Credit Index2     Index3
–20.61%
    –20.92%     –20.90%     –20.53%     –33.95%     3.07%     –28.37%
                                     
 
The performance of the Fund’s four share classes varies because each has different expenses. The Fund’s total returns assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. See Performance Summary for standardized performance and benchmark information.
 
Market Conditions
 
 
The U.S. and other developed nations’ economic malaise migrated throughout most developed economies and emerging markets as 2008 progressed. The credit deleveraging cycle, which began with the lowest-quality consumer mortgages in the U.S., U.K. and Australia, soon spread to higher quality credits, as well as to the auto and student loan markets. The financial services industry, which had bundled and sold many of these instruments, found that residential and commercial property portfolios warehoused on their balance sheets were rapidly declining in value. By the fourth quarter, global banks, insurance companies and brokerages were fighting for their survival, while credit markets froze in the wake of the Lehman Brothers’ bankruptcy. Monetary and fiscal levers were utilized in an attempt to forestall the collapse of the global financial system, which, as January 2009 wound to a close, appeared to be headed for more direct government intervention than at any time since the Japanese experience in the 1990s or the U.S. bank crisis of the 1930s.
 
Performance Analysis
 
 
All share classes of Morgan Stanley Strategist Fund outperformed the S&P 500® Index (“the Index”) and the Lipper Flexible Portfolio Funds Index, and underperformed the Barclays Capital (formerly Lehman Brothers) U.S. Government/Credit Index for the six months ended January 31, 2009, assuming no deduction of applicable sales charges.
 
Within our investment framework, three factors influence our core portfolio positions: the rate of inflation, the direction and magnitude of corporate profits and shifts in interest rates. On the inflation front, commodity prices and labor costs fell sharply throughout the period, as the global recession accelerated into 2009. Corporate profits, with the exception of financial services and consumer cyclicals, hit record levels in the third quarter of 2008, only to face the reality of the global capital spending slowdown during the fourth quarter. And finally, global central banks, in an attempt to head off a prolonged recession, entered uncharted territories by taking interest rates to historic low levels in rapid fashion. While often an early sign of economic renewal, the debt deleveraging that has only just begun around the world will likely keep a lid on growth for the forecastable future.
 
We retained our Fund’s defensive asset allocation stance throughout the period under review. Our equity portfolio, roughly 60 percent of the Fund’s total assets, was diversified throughout the ten broad

2


 

sectors which make up the S&P 500® Index. Our largest sector exposures included information technology, health care and consumer staples.
 
The fixed income portion of the Fund, roughly 20 percent of the total Fund’s assets, maintained diversified holdings throughout the period under review. At the period’s end, the fixed income portfolio held approximately 18 percent of its assets in long-maturity U.S. government securities, 12 percent in mortgage-backed securities and 41 percent in corporate instruments. The balance of the portfolio was held in short-term cash equivalents, most of which were short duration* non-money market securities.
 
In summary, as of January 31, 2009, the Fund’s strategic asset allocation target stood at 60 percent equity (versus a neutral benchmark weight of 55 percent**), 20 percent fixed income (versus a neutral benchmark weight of 35 percent), and 20 percent cash and short-term investments (versus a neutral benchmark weight of 10 percent), unchanged from July 31, 2008.
 
There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future.
 
* A measure of the sensitivity of a bond’s price to changes in interest rates, expressed in years. Each year of duration represents an expected 1 percent change in the price of a bond for every 1 percent change in interest rates. The longer a bond’s duration, the greater the effect of interest-rate movements on its price. Typically, funds with shorter durations perform better in rising-interest-rate environments, while funds with longer durations perform better when rates decline.
 
** Source: Morgan Stanley Investment Management. The “neutral weight” reflects the average allocation held by U.S. pension funds.

3


 

 
         
TOP 10 HOLDINGS as of 01/31/09
U.S. Treasury Securities
    3 .6%
Federal National Mortgage Association
    2 .4
Kraft Foods Inc. (Class A)
    2 .1
Oracle Corp.
    2 .0
Sybase, Inc.
    1 .8
International Business Machines Corp.
    1 .7
McDonald’s Corp. 
    1 .6
St. Jude Medical, Inc.
    1 .5
Raytheon Co. 
    1 .5
Colgate-Palmolive Corp.
    1 .4
 
         
PORTFOLIO COMPOSITION as of 01/31/09
Common Stocks
    56 .0%
Short-Term Investments
    27 .8
U.S. Government Agencies & Obligations
    7 .9
Corporate Notes/Bonds
    7 .6
Asset-Backed Securities
    0 .6
Other Securities
    0 .1
 
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned above. Top 10 holdings are as a percentage of net assets and portfolio composition are as a percentage of total investments. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.
 
Investment Strategy
 
 
The Fund’s “Investment Adviser,” Morgan Stanley Investment Advisors Inc., actively allocates the Fund’s assets among the major asset categories of equity securities (including depositary receipts), fixed-income securities and money market instruments. In determining which securities to buy, hold or sell for the Fund, the Investment Adviser allocates the Fund’s assets based on, among other things, its assessment of the effects of economic and market trends on different sectors of the market. There is no limit as to the percentage of assets that may be allocated to any one asset class.
 
For More Information About Portfolio Holdings
 
 
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund’s second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund’s first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC’s web site, http://www.sec.gov. You may also review and copy them at the SEC’s public reference

4


 

room in Washington, DC. Information on the operation of the SEC’s public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC’s e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-0102.
 
Proxy Voting Policy and Procedures and Proxy Voting Record
 
 
You may obtain a copy of the Fund’s Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 869-NEWS or by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. It is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
 
You may obtain information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. This information is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
 
Householding Notice
 
 
To reduce printing and mailing costs, the Fund attempts to eliminate duplicate mailings to the same address. The Fund delivers a single copy of certain shareholder documents, including shareholder reports, prospectuses and proxy materials, to investors with the same last name who reside at the same address. Your participation in this program will continue for an unlimited period of time unless you instruct us otherwise. You can request multiple copies of these documents by calling (800) 869-NEWS, 8:00 a.m. to 8:00 p.m., ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days.

5


 

Performance Summary

Average Annual Total Returns — Period Ended January 31, 2009
 
                                 
                                 
      Class A Shares *     Class B Shares **     Class C Shares     Class I Shares ††
      (since 07/28/97 )     (since 10/31/88 )     (since 07/28/97 )     (since 07/28/97 )
Symbol
    SRTAX       SRTBX       SRTCX       SRTDX  
1 Year
    (23.60 )%4     (24.18 )%4     (24.13 )%4     (23.42 )%4
      (27.61 5     (27.90 5     (24.87 5     —   
                                 
5 Years
    1.29  4     0.53  4     0.57  4     1.54  4
      0.21  5     0.20  5     0.57  5     —   
                                 
10 Years
    2.30  4     1.69  4     1.53  4     2.54  4
      1.75  5     1.69  5     1.53  5     —   
                                 
Since Inception
    3.65  4     7.70  4     2.87  4     3.89  4
      3.16  5     7.70  5     2.87  5     —   
 
Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please visit www.morganstanley.com/msim or speak with your Financial Advisor. Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or less than their original cost. The table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance for Class A, Class B, Class C, and Class I shares will vary due to differences in sales charges and expenses.
 
* The maximum front-end sales charge for Class A is 5.25%.
 
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years. Effective April 2005, Class B shares will generally convert to Class A shares approximately eight years after the end of the calendar month in which the shares were purchased. Performance for periods greater than eight years reflects this conversion (beginning April 2005).
 
The maximum contingent deferred sales charge for Class C is 1.0% for shares redeemed within one year of purchase.
 
†† Class I has no sales charge.
 
1) The Standard & Poor’s 500® Index (S&P 500®) measures the performance of the large cap segment of the U.S. equities market, covering approximately 75% of the U.S. equities market. The Index includes 500 leading companies in leading industries of the U.S. economy. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
 
2) The Barclays Capital (formerly Lehman Brothers) U.S. Government/Credit Index tracks the performance of government and corporate obligations, including U.S. government agency and Treasury securities and corporate and Yankee bonds. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
 
3) The Lipper Flexible Portfolio Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Flexible Portfolio Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. The Fund was in the Lipper Flexible Portfolio Funds classification as of the date of this report.
 
4) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges.
 
5) Figure shown assumes reinvestment of all distributions and the deduction of the maximum applicable sales charge. See the Fund’s current prospectus for complete details on fees and sales charges.

6


 

Expense Example
 
 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees; and (2) ongoing costs, including advisory fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
 
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 08/01/08 – 01/31/09.
 
Actual Expenses
 
 
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
 
Hypothetical Example for Comparison Purposes
 
 
The second line of the table below provides information about hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
 
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
 
                         
    Beginning
  Ending
  Expenses Paid
    Account Value   Account Value   During Period@
            08/01/08–
    08/01/08   01/31/09   01/31/09
Class A
                       
Actual (−20.61% return)
  $ 1,000.00     $ 793.90     $ 4.16  
Hypothetical (5% annual return before expenses)
  $ 1,000.00     $ 1,020.57     $ 4.69  
Class B
                       
Actual (−20.92% return)
  $ 1,000.00     $ 790.80     $ 7.54  
Hypothetical (5% annual return before expenses)
  $ 1,000.00     $ 1,016.79     $ 8.49  
Class C
                       
Actual (−20.90% return)
  $ 1,000.00     $ 791.00     $ 7.54  
Hypothetical (5% annual return before expenses)
  $ 1,000.00     $ 1,016.79     $ 8.49  
Class I
                       
Actual (−20.53% return)
  $ 1,000.00     $ 794.70     $ 3.03  
Hypothetical (5% annual return before expenses)
  $ 1,000.00     $ 1,021.83     $ 3.41  
@ Expenses are equal to the Fund’s annualized expense ratios of 0.92%, 1.67%, 1.67% and 0.67% for Class A, Class B, Class C and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). If the Fund had borne all of its expenses, the annualized expense ratios would have been 0.95%, 1.70%, 1.70% and 0.70% for Class A, Class B, Class C and Class I shares, respectively.

7


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited)
 
                                   
NUMBER OF
                   
SHARES                   VALUE
        Common Stocks (57.6%)                          
        Advertising/Marketing Services (0.5%)                          
  106,720    
Omnicom Group, Inc. 
  $ 2,762,981  
                 
                                   
        Aerospace & Defense (2.7%)                          
  141,310    
Northrop Grumman Corp. 
    6,799,837  
  162,400    
Raytheon Co. 
    8,220,688  
                 
                                15,020,525  
                                   
        Airlines (1.3%)                          
  381,540    
Continental Airlines, Inc. (Class B) (a)
    5,139,344  
  304,800    
Southwest Airlines Co. 
    2,142,744  
                 
                                7,282,088  
                                   
        Aluminum (0.1%)                          
  64,560    
Alcoa, Inc. 
    502,922  
                 
                                   
        Biotechnology (2.8%)                          
  89,140    
Celgene Corp. (a) 
    4,719,963  
  128,290    
Gilead Sciences, Inc. (a)
    6,513,283  
  131,510    
Vertex Pharmaceuticals Inc. (a)
    4,346,405  
                 
                                15,579,651  
                                   
        Chemicals: Major Diversified (0.4%)                          
  184,670    
Dow Chemical Co. (The)
    2,140,325  
                 
                                   
        Computer Communications (0.7%)                          
  266,500    
Cisco Systems, Inc. (a)
    3,989,505  
                 
                                   
        Computer Peripherals (0.9%)                          
  434,050    
EMC Corp. (a)
    4,791,912  
                 
                                   
        Computer Processing Hardware (1.5%)                          
  76,555    
Apple Inc. (a)
    6,899,902  
  173,520    
Dell Inc. (a)
    1,648,440  
                 
                                8,548,342  
                                   
        Contract Drilling (0.7%)                          
  60,550    
Diamond Offshore Drilling, Inc. 
    3,800,118  
                 
 
See Notes to Financial Statements

8


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                   
NUMBER OF
                   
SHARES                   VALUE
                                   
        Department Stores (0.4%)                          
  61,715    
Kohl’s Corp. (a)
  $ 2,265,558  
                 
                                   
        Discount Stores (0.6%)                          
  68,835    
Costco Wholesale Corp. 
    3,099,640  
                 
                                   
        Electric Utilities (0.3%)                          
  51,960    
American Electric Power Co., Inc. 
    1,628,946  
                 
                                   
        Electrical Products (0.5%)                          
  91,640    
Emerson Electric Co. 
    2,996,628  
                 
                                   
        Electronic Production Equipment (0.5%)                          
  200,000    
Applied Materials, Inc. 
    1,874,000  
  50,000    
KLA-Tencor Corp. 
    1,002,000  
                 
                                2,876,000  
                                   
        Electronics/Appliances (0.9%)                          
  260,000    
Eastman Kodak Co. 
    1,177,800  
  187,240    
Sony Corp. (ADR) (Japan)
    3,598,753  
                 
                                4,776,553  
                                   
        Finance/Rental/Leasing (0.5%)                          
  55,750    
VISA Inc. (Class A)
    2,751,263  
                 
                                   
        Financial Conglomerates (1.0%)                          
  101,070    
American Express Co. 
    1,690,901  
  460,000    
Citigroup, Inc. 
    1,633,000  
  86,420    
JPMorgan Chase & Co. 
    2,204,574  
                 
                                5,528,475  
                                   
        Food: Major Diversified (3.4%)                          
  175,130    
Kellogg Co. 
    7,651,430  
  411,374    
Kraft Foods Inc. (Class A)
    11,539,041  
                 
                                19,190,471  
                                   
        Forest Products (0.2%)                          
  43,930    
Weyerhaeuser Co. 
    1,201,046  
                 
                                   
        Home Building (0.6%)                          
  319,000    
Gafisa S.A. (ADR) (Brazil)
    3,161,290  
                 
 
See Notes to Financial Statements

9


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                   
NUMBER OF
                   
SHARES                   VALUE
                                   
        Home Improvement Chains (0.6%)                          
  186,950    
Lowe’s Companies, Inc. 
  $ 3,415,577  
                 
                                   
        Household/Personal Care (1.4%)                          
  121,210    
Colgate-Palmolive Co. 
    7,883,498  
                 
                                   
        Information Technology Services (1.7%)                          
  102,030    
International Business Machines Corp. 
    9,351,050  
                 
                                   
        Integrated Oil (1.9%)                          
  73,410    
Exxon Mobil Corp. 
    5,614,397  
  87,980    
Hess Corp. 
    4,892,568  
                 
                                10,506,965  
                                   
        Internet Retail (0.3%)                          
  70,000    
Gamestop Corp (Class A) (a)
    1,734,600  
                 
                                   
        Internet Software/Services (0.6%)                          
  10,330    
Google Inc. (Class A) (a)
    3,497,015  
                 
                                   
        Investment Banks/Brokers (1.4%)                          
  100,100    
Lazard Ltd. (Class A) (Bermuda)
    2,652,650  
  377,970    
Schwab (Charles) Corp. (The)
    5,136,612  
                 
                                7,789,262  
                                   
        Investment Managers (0.7%)                          
  177,810    
Janus Capital Group, Inc. 
    933,503  
  177,200    
AllianceBernstein Holding LP
    3,026,576  
                 
                                3,960,079  
                                   
        Major Banks (0.7%)                          
  400,985    
Bank of America Corp. 
    2,638,481  
  61,480    
Wells Fargo & Co. 
    1,161,972  
                 
                                3,800,453  
                                   
        Major Telecommunications (0.4%)                          
  98,350    
AT&T Inc. 
    2,421,377  
                 
                                   
        Media Conglomerates (0.1%)                          
  68,130    
Time Warner, Inc. 
    635,653  
                 
 
See Notes to Financial Statements

10


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                   
NUMBER OF
                   
SHARES                   VALUE
                                   
        Medical Specialties (5.3%)                          
  81,275    
Bard (C.R.), Inc. 
  $ 6,954,702  
  119,000    
Covidien Ltd. 
    4,562,460  
  237,605    
St. Jude Medical, Inc. (a)
    8,641,694  
  189,480    
Thermo Fisher Scientific, Inc. (a)
    6,808,016  
  78,885    
Zimmer Holdings, Inc. (a)
    2,871,414  
                 
                                29,838,286  
                                   
        Miscellaneous Commercial Services (0.6%)                          
  534,130    
E-House China Holdings Ltd. 
    3,541,282  
                 
                                   
        Motor Vehicles (0.7%)                          
  163,100    
Honda Motor Co., Ltd. (ADR) (Japan)
    3,695,846  
                 
                                   
        Oilfield Services/Equipment (1.4%)                          
  135,700    
Halliburton Co. 
    2,340,825  
  96,610    
Smith International, Inc. 
    2,193,047  
  314,300    
Weatherford International Ltd. (Bermuda) (a)
    3,466,729  
                 
                                8,000,601  
                                   
        Other Consumer Services (0.2%)                          
  106,000    
eBay Inc. (a)
    1,274,120  
                 
                                   
        Packaged Software (4.9%)                          
  384,100    
Microsoft Corp. 
    6,568,110  
  662,630    
Oracle Corp. (a)
    11,152,063  
  360,640    
Sybase, Inc. (a)
    9,849,078  
                 
                                27,569,251  
                                   
        Pharmaceuticals: Major (1.4%)                          
  136,310    
Johnson & Johnson
    7,863,724  
                 
                                   
        Precious Metals (1.3%)                          
  193,060    
Barrick Gold Corp. (Canada)
    7,237,819  
                 
                                   
        Property – Casualty Insurers (0.3%)                          
  40,000    
Chubb Corp. (The)
    1,703,200  
                 
 
See Notes to Financial Statements

11


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                   
NUMBER OF
                   
SHARES                   VALUE
                                   
        Recreational Products (1.3%)                          
  400,000    
Activision Blizzard Inc. 
  $ 3,504,000  
  263,540    
Mattel, Inc. 
    3,739,633  
                 
                                7,243,633  
                                   
        Restaurants (1.6%)                          
  150,000    
McDonald’s Corp. 
    8,703,000  
                 
                                   
        Semiconductors (1.7%)                          
  401,230    
Intel Corp. 
    5,175,867  
  586,482    
Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) (Taiwan)
    4,422,071  
                 
                                9,597,938  
                                   
        Specialty Stores (0.1%)                          
  44,490    
Staples, Inc. 
    709,171  
                 
                                   
        Specialty Telecommunications (1.1%)                          
  460,000    
Qwest Communications International, Inc. (a)
    1,481,200  
  551,590    
Windstream Corp. 
    4,787,801  
                 
                                6,269,001  
                                   
        Steel (0.9%)                          
  275,000    
AK Steel Holding Corp. (a)
    2,219,250  
  102,010    
United States Steel Corp. 
    3,063,360  
                 
                                5,282,610  
                                   
        Telecommunication Equipment (1.2%)                          
  400,000    
Corning Inc. 
    4,044,000  
  224,120    
Nokia Corp. (ADR) (Finland)
    2,749,952  
                 
                                6,793,952  
                                   
        Tobacco (1.9%)                          
  239,120    
Altria Group, Inc. 
    3,955,045  
  181,250    
Philip Morris International
    6,733,437  
                 
                                10,688,482  
                                   
        Trucks/Construction/Farm Machinery (0.5%)                          
  115,100    
PACCAR, Inc. 
    3,037,489  
                 
                                   
        Wireless Telecommunications (0.9%)                          
  373,593    
Metropcs Communications Inc. (a)
    5,077,129  
                 
       
Total Common Stocks (Cost $323,042,523)
      $ 323,016,302  
                     
                                   
 
See Notes to Financial Statements

12


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
        Corporate Bonds (8.0%)                        
        Accident & Health Insurance (0.0%)                        
$ 190    
Travelers Co., Inc. 
    5 .80 %   05/15/18       $ 187,201  
                                 
                                 
        Aerospace & Defense (0.1%)                        
  353    
Systems 2001 Asset Trust – 144A** (Cayman Islands)
    6 .664   09/15/13         313,792  
                                 
                                 
        Agricultural Commodities/Milling (0.0%)                        
  190    
Archer Daniels
    5 .45   03/15/18         189,112  
                                 
                                 
        Airlines (0.1%)                        
  554    
America West Airlines, Inc. (Series 01-1)
    7 .10   04/02/21         382,370  
                                 
                                 
        Beverages: Alcoholic (0.1%)                        
  280    
Diageo Capital PLC
    7 .375   01/15/14         307,388  
  300    
FBG Finance Ltd. – 144A (b) (Australia)
    5 .125   06/15/15         256,676  
                                 
                              564,064  
                                 
        Biotechnology (0.1%)                        
  35    
Amgen, Inc. 
    5 .70   02/01/19         36,445  
  310    
Amgen, Inc. 
    5 .85   06/01/17         324,196  
  240    
Biogen Idec Inc. 
    6 .875   03/01/18         247,490  
                                 
                              608,131  
                                 
        Brewery (0.0%)                        
  185    
Anheuser-Busch Inbev Wor
    7 .20   01/15/14         188,168  
                                 
                                 
        Broadcasting (0.0%)                        
  155    
Grupo Televisa SA – 144A (b)
    6 .00   05/15/18         133,496  
                                 
                                 
        Cable/Satellite TV (0.1%)                        
  355    
Comcast Corp. 
    5 .70   05/15/18         345,771  
  125    
Comcast Corp. 
    6 .50   01/15/15         126,348  
                                 
                              472,119  
                                 
        Casino/Gaming (0.1%)                        
  180    
MGM Mirage Inc. – 144A (b)
    13 .00   11/15/13         164,700  
  135    
MGM Mirage Inc. 
    6 .00   10/01/09         129,938  
                                 
                              294,638  
                                 
 
See Notes to Financial Statements

13


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
        Chemicals: Agricultural (0.0%)                        
$ 70    
Monsanto Co. 
    5 .125%   04/15/18       $ 70,300  
                                 
                                 
        Chemicals: Major Diversified (0.0%)                        
  165    
E.I. Du Pont de Nemours & Co. 
    6 .00   07/15/18         169,602  
                                 
                                 
        Computer Processing Hardware (0.1%)                        
  210    
Dell Inc. – 144A (b)
    5 .65   04/15/18         203,186  
  95    
Hewlett-Packard Co. 
    5 .50   03/01/18         98,673  
                                 
                              301,859  
                                 
        Department Stores (0.1%)                        
  710    
General Electrics Cap Corp. 
    5 .625   05/01/18         655,887  
                                 
                                 
        Discount Stores (0.1%)                        
  380    
Wal Mart Stores Inc. 
    4 .25   04/15/13         403,584  
  245    
Wal Mart Stores Inc. 
    4 .125   02/01/19         239,304  
  10    
Wal Mart Stores Inc. 
    6 .20   04/15/38         10,849  
  15    
Wal Mart Stores Inc. 
    6 .50   08/15/37         17,017  
                                 
                              670,754  
                                 
        Diversified Manufacturing (0.1%)                        
  575    
Tyco Electronics Group SA
    5 .95   01/15/14         514,879  
                                 
                                 
        Drugstore Chains (0.1%)                        
  50    
CVS Caremark Corp. 
    5 .75   06/01/17         50,110  
  447    
CVS Lease Pass Through – 144A (b)
    6 .036   12/10/28         342,193  
  55    
Walgreen Co. 
    4 .875   08/01/13         57,919  
  175    
Walgreen Co. 
    5 .25   01/15/19         175,464  
                                 
                              625,686  
                                 
        Education (0.0%)                        
  205    
Duke University
    5 .15   04/01/19         211,283  
                                 
                                 
        Electric Utilities (0.8%)                        
  145    
Alabama Power
    5 .80   11/15/13         156,330  
  55    
Appalachian Power Co. (Series O)
    5 .65   08/15/12         54,761  
  320    
Carolina Power & Light Co. 
    5 .125   09/15/13         335,195  
  145    
CenterPoint Energy Resources, Corp. 
    6 .25   02/01/37         93,203  
  85    
CenterPoint Energy Resources, Corp. (Series B)
    7 .875   04/01/13         84,507  
  190    
Consolidated Natural Gas Co. (Series C)
    6 .25   11/01/11         196,346  
  385    
Consumers Energy Co. (Series H)
    4 .80   02/17/09         384,838  
 
See Notes to Financial Statements

14


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
$ 175    
Detroit Edison Co. (The)
    6 .125%   10/01/10       $ 178,001  
  485    
E.ON International Finance BV (Netherlands)
    5 .80   04/30/18         469,175  
  355    
Electricite de France 144A (b)
    6 .50   01/26/19         369,013  
  375    
Entergy Gulf States, Inc. 
    2 .603   12/01/09         362,332  
  220    
Ohio Edison Co. 
    6 .40   07/15/16         206,738  
  415    
Ohio Power Company (Series K)
    6 .00   06/01/16         401,397  
  100    
PACIFICORP
    5 .50   01/15/19         102,938  
  165    
Peco Energy Co. 
    5 .35   03/01/18         162,446  
  160    
PPL Energy Supply LLC
    6 .30   07/15/13         152,051  
  130    
Public Service Co. of Colorado
    6 .50   08/01/38         139,827  
  270    
Public Service Electric & Gas Co. (Series MTN B)
    5 .00   01/01/13         269,637  
  240    
Texas Eastern Transmission
    7 .00   07/15/32         201,428  
  165    
Union Electric Co. 
    6 .70   02/01/19         159,544  
  70    
Virginia Electric & Power Co. 
    8 .875   11/15/38         90,594  
                                 
                              4,570,301  
                                 
        Electrical Products (0.1%)                        
  285    
Cooper Industries, Inc. 
    5 .25   11/15/12         286,048  
  125    
Emerson Electric Co. 
    4 .875   10/15/19         122,056  
                                 
                              408,104  
                                 
        Electronic Components (0.1%)                        
  350    
Philips Electronics NV
    5 .75   03/11/18         336,348  
                                 
                                 
        Electronic Equipment/Instruments (0.0%)                        
  225    
Xerox Corp. 
    6 .35   05/15/18         186,496  
                                 
                                 
        Electronic Production Equipment (0.0%)                        
  165    
KLA-Tencor Corp. 
    6 .90   05/01/18         125,652  
                                 
                                 
        Electronics/Appliances (0.0%)                        
  220    
LG Electronics Inc. – 144A (South Korea) (b)
    5 .00   06/17/10         205,285  
                                 
                                 
        Finance (0.0%)                        
  165    
Pearson Dollar Finance Two PLC – 144A (b)
    6 .25   05/06/18         141,804  
                                 
                                 
        Finance/Rental/Leasing (0.1%)                        
  375    
Nationwide Building Society – 144A (United Kingdom) (b)
    4 .25   02/01/10         370,668  
  215    
SLM Corp. 
    8 .45   06/15/18         183,186  
                                 
                              553,854  
                                 
 
See Notes to Financial Statements

15


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
        Financial Conglomerates (0.4%)                        
$ 370    
American Express Credit Corp. 
    7 .30 %   08/20/13       $ 378,877  
  155    
Brookfield Asset Management Inc. (Canada)
    5 .80   04/25/17         80,600  
  315    
Citigroup Inc. 
    5 .875   05/29/37         243,936  
  30    
Citigroup Inc. 
    6 .125   11/21/17         27,179  
  245    
Citigroup Inc. 
    6 .125   05/15/18         222,674  
  55    
General Electric Capital Corp. (Series MTNA)
    4 .75   09/15/14         52,216  
  330    
JPMorgan Chase & Co. 
    4 .75   05/01/13         327,759  
  675    
JPMorgan Chase & Co. 
    6 .00   01/15/18         678,914  
  150    
Prudential Financial, Inc. 
    6 .625   12/01/37         112,256  
                                 
                              2,124,411  
                                 
        Food Retail (0.1%)                        
  75    
Delhaize America, Inc. 
    9 .00   04/15/31         86,118  
  160    
Delhaize America, Inc. 
    5 .875   02/01/14         161,647  
  100    
Kroger Co. (The)
    5 .00   04/15/13         100,049  
  80    
Kroger Co. (The)
    6 .40   08/15/17         81,231  
  80    
McDonalds Corp. 
    5 .70   02/01/39         82,872  
  40    
McDonalds Corp. 
    6 .30   10/15/37         43,941  
                                 
                              555,858  
                                 
        Food: Major Diversified (0.2%)                        
  160    
ConAgra Foods, Inc. 
    7 .00   10/01/28         156,558  
  135    
ConAgra Foods, Inc. 
    8 .25   09/15/30         148,430  
  180    
General Mills Inc. 
    5 .25   08/15/13         184,474  
  120    
General Mills Inc. 
    5 .65   02/15/19         122,629  
  35    
Kraft Foods Inc. 
    6 .125   02/01/18         35,751  
  345    
Kraft Foods Inc. 
    6 .125   08/23/18         352,725  
  15    
Kraft Foods Inc. 
    6 .75   02/19/14         16,269  
                                 
                              1,016,836  
                                 
        Foods & Beverages (0.0%)                        
  190    
Dr Pepper Snapple Group – 144A (b)
    6 .82   05/01/18         180,076  
                                 
                                 
        Gas Distributors (0.2%)                        
  90    
Equitable Resources Inc. 
    6 .50   04/01/18         80,432  
  205    
NiSource Finance Corp. 
    6 .80   01/15/19         146,883  
  325    
NiSource Finance Corp. 
    2 .723   11/23/09         307,096  
  305    
Questar Market Resources Inc. 
    6 .80   04/01/18         282,193  
                                 
                              816,604  
                                 
        Home Improvement Chains (0.1%)                        
  295    
Home Depot Inc. 
    5 .40   03/01/16         268,629  
                                 
 
See Notes to Financial Statements

16


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
                                 
        Hotels/Resorts/Cruiselines (0.0%)                        
$ 240    
Starwood Hotels & Resorts
    6 .75 %   05/15/18       $ 161,045  
                                 
                                 
        Household/Personal Care (0.0%)                        
  85    
Procter & Gamble Co. 
    4 .60   01/15/14         90,075  
                                 
                                 
        Industrial Conglomerates (0.2%)                        
  1,205    
General Electric Co. 
    5 .25   12/06/17         1,142,236  
  210    
Honeywell International Inc. 
    5 .30   03/01/18         210,516  
                                 
                              1,352,752  
                                 
        Industrial Machinery (0.0%)                        
  195    
Parker-Hannifin Corp. 
    5 .50   05/15/18         180,769  
                                 
                                 
        Information Technology Services (0.1%)                        
  300    
IBM Corp. 
    7 .625   10/15/18         355,708  
                                 
                                 
        Insurance Brokers/Services (0.1%)                        
  585    
Catlin Insurance Co., Ltd. – 144A (Bahamas) (b)
    7 .249   12/31/49         139,431  
  440    
Farmers Exchange Capital – 144A (b)
    7 .05   07/15/28         256,902  
                                 
                              396,333  
                                 
        Integrated Oil (0.2%)                        
  425    
ConocoPhillips
    5 .20   05/15/18         419,890  
  80    
ConocoPhillips
    5 .75   02/01/19         79,461  
  115    
Marathon Oil Corp. 
    5 .90   03/15/18         99,805  
  260    
Marathon Oil Corp. 
    6 .00   10/01/17         232,229  
  185    
Petro-Canada
    6 .05   05/15/18         152,755  
                                 
                              984,140  
                                 
        International Banks (0.0%)                        
  195    
UBS AG
    5 .875   12/20/17         174,598  
                                 
                                 
        Investment Banks/Brokers (0.5%)                        
  305    
Bear Stearns Companies Inc. (The)
    7 .25   02/01/18         325,196  
  280    
Bear Stearns Companies Inc. (The)
    6 .40   10/02/17         282,095  
  605    
Goldman Sachs Group Inc. (The)
    6 .75   (e)         461,104  
  735    
Goldman Sachs Group Inc. (The)
    6 .15   04/01/18         672,293  
  680    
Merrill Lynch & Co., Inc. (Series MTN)
    6 .875   04/25/18         655,742  
  275    
NYSE Euronext
    4 .80   06/28/13         267,689  
                                 
                              2,664,119  
                                 
 
See Notes to Financial Statements

17


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
        Life/Health Insurance (0.0%)                        
$ 225    
MetLife Inc. 
    6 .817(c)%   08/15/18       $ 228,963  
                                 
                                 
        Major Banks (0.8%)                        
  545    
Bank of America Corp. 
    5 .65   05/01/18         494,452  
  640    
Bank of America Corp. 
    5 .75   12/01/17         584,824  
  255    
Bank of New York Mellon Corp. (Series MTN)
    4 .50   04/01/13         254,635  
  160    
Bank of New York Mellon Corp. 
    5 .125   08/27/13         163,186  
  100    
Credit Suisse New York (Switzerland)
    5 .00   05/15/13         96,962  
  290    
Credit Suisse New York (Switzerland)
    6 .00   02/15/18         266,129  
  110    
Credit Suisse USA Inc. (Switzerland)
    5 .125   08/15/15         101,284  
  385    
HBOS Treasury Services PLC – 144A (United Kingdom) (b)
    6 .75   05/21/18         340,667  
  280    
HSBC Finance Corp. 
    6 .75   05/15/11         285,577  
  100    
MBNA Capital I (Series A)
    8 .278   12/01/26         76,858  
  295    
Popular North America, Inc. (Series F)
    5 .65   04/15/09         293,295  
  805    
Wachovia Capital Trust III
    5 .80(e)             410,717  
  170    
Wachovia Corp. 
    5 .50   05/01/13         175,378  
  685    
Wells Fargo Co. 
    5 .625   12/11/17         672,182  
                                 
                              4,216,146  
                                 
        Major Telecommunications (0.7%)                        
  235    
AT&T Corp. 
    8 .00   11/15/31         279,630  
  140    
AT&T Inc. 
    6 .55   02/15/39         139,941  
  60    
AT&T Inc. 
    5 .60   05/15/18         59,999  
  570    
AT&T Inc. 
    6 .30   01/15/38         558,608  
  150    
Deutsche Telekom International Finance Corp. NV (Netherlands)
    8 .75   06/15/30         185,578  
  270    
France Telecom S.A. (France)
    8 .50   03/01/31         345,940  
  195    
Rogers Communications
    6 .80   08/15/18         203,192  
  150    
SBC Communications, Inc. 
    6 .15   09/15/34         143,425  
  175    
Sprint Capital Corp. 
    8 .75   03/15/32         108,252  
  65    
Telecom Italia Capital SA (Luxembourg)
    4 .95   09/30/14         56,416  
  145    
Telecom Italia Capital SA (Luxembourg)
    6 .999   06/04/18         134,492  
  210    
Telecom Italia Capital SA (Luxembourg)
    4 .00   01/15/10         204,076  
  80    
Telecom Italia Capital SA (Luxembourg)
    4 .875   10/01/10         76,620  
  345    
Telefonica Europe BV (Netherlands)
    8 .25   09/15/30         403,236  
  485    
Verizon Communications
    5 .50   02/15/18         474,238  
  150    
Verizon Communications
    8 .95   03/01/39         185,313  
  315    
Verizon Wireless Capital
    5 .55   02/01/14         312,975  
                                 
                              3,871,931  
                                 
        Managed Health Care (0.0%)                        
  230    
UnitedHealth Group Inc. 
    6 .00   02/15/18         223,527  
                                 
 
See Notes to Financial Statements

18


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
                                 
        Marine Shipping (0.0%)                        
$ 225    
Union Pacific Corp. 
    7 .875 %   01/15/19       $ 249,744  
                                 
                                 
        Media Conglomerates (0.3%)                        
  290    
Time Warner Cable Inc. 
    6 .75   07/01/18         283,695  
  195    
Time Warner Cable Inc. 
    8 .75   02/14/19         217,515  
  555    
Time Warner, Inc. 
    5 .875   11/15/16         525,301  
  345    
Viacom, Inc. 
    6 .875   04/30/36         254,539  
  255    
Vivendi – 144A (France) (b)
    6 .625   04/04/18         220,280  
                                 
                              1,501,330  
                                 
        Medical Specialties (0.1%)                        
  65    
Baxter International
    5 .375   06/01/18         67,210  
  280    
Covidien International Finance
    6 .00   10/15/17         285,305  
                                 
                              352,515  
                                 
        Miscellaneous (0.1%)                        
  190    
AES Corporation – 144A (b)
    8 .75   05/15/13         191,425  
                                 
                                 
        Motor Vehicles (0.1%)                        
  250    
DaimlerChrysler North American Holdings Co. 
    8 .50   01/18/31         225,304  
  185    
Harley-Dacidson Funding – 144A (b)
    6 .80   06/15/18         111,475  
                                 
                              336,779  
                                 
        Multi-Line Insurance (0.1%)                        
  790    
AIG SunAmerica Global Financing VI – 144A (b)
    6 .30   05/10/11         711,158  
  405    
Two-Rock Pass Through – 144A (Bahamas) (b)
    3 .743(c)   (d)         8,606  
                                 
                              719,764  
                                 
        Oil & Gas Pipelines (0.1%)                        
  89    
Colorado Interstate Gas Co. 
    6 .80   11/15/15         83,438  
  100    
GAZ Capital SA – 144A (luxembourg) (b)
    6 .51   03/07/22         61,500  
  165    
Kinder Morgan Finance Co. (Canada)
    5 .70   01/05/16         143,138  
  395    
Plains All American Pipeline LP/PAA Finance Corp. 
    6 .70   05/15/36         276,255  
  190    
TransCanada Pipelines
    6 .50   08/15/18         193,108  
                                 
                              757,439  
                                 
        Oil & Gas Production (0.1%)                        
  155    
Devon Financing Corp. 
    7 .875   09/30/31         164,691  
  305    
XTO Energy Inc. 
    5 .50   06/15/18         280,514  
                                 
                              445,205  
                                 
        Oil Refining/Marketing (0.0%)                        
  255    
Valero Energy Corp. 
    3 .50   04/01/09         253,949  
                                 
 
See Notes to Financial Statements

19


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
                                 
       
Oilfield Services/Equipment (0.0%)
                       
$ 190    
Weatherford International Inc. 
    6 .00 %   03/15/18       $ 151,951  
                                 
                                 
       
Other Metals/Minerals (0.1%)
                       
  565    
Brascan Corp. (Canada)
    7 .125   06/15/12         384,200  
  165    
Rio Tinto Finance (USA) Ltd. (Australia)
    6 .50   07/15/18         138,747  
                                 
                              522,947  
                                 
       
Packaged Software (0.1%)
                       
  330    
Oracle Corp. 
    5 .75   04/15/18         343,964  
                                 
                                 
       
Pharmaceuticals: Major (0.2%)
                       
  260    
Astrazeneca PLC
    5 .90   09/15/17         280,178  
  15    
Astrazeneca PLC
    6 .45   09/15/37         16,593  
  370    
Bristol-Myers Squibb
    5 .45   05/01/18         384,531  
  335    
GlaxoSmithKline Capital Inc. 
    5 .65   05/15/18         359,600  
  130    
Wyeth
    5 .45   04/01/17         132,086  
  25    
Wyeth
    5 .50   02/15/16         26,155  
                                 
                              1,199,143  
                                 
       
Property – Casualty Insurers (0.2%)
                       
  225    
ACE INA Holdings Inc. 
    5 .60   05/15/15         213,138  
  420    
Berkshire Hathaway Finance – 144A (b)
    5 .40   05/15/18         428,765  
  60    
Chubb Corp. 
    5 .75   05/15/18         59,102  
  215    
Platinum Underwriters Finance Inc. (Series B)
    7 .50   06/01/17         149,390  
  465    
Xlliac Global Funding – 144A (b)
    4 .80   08/10/10         414,905  
                                 
                              1,265,300  
                                 
       
Railroads (0.1%)
                       
  255    
Burlington Santa Fe Corp. 
    6 .125   03/15/09         255,562  
  70    
Canadian National Railway Co. 
    5 .55   05/15/18         66,492  
  160    
Korea Railroad Corp. – 144A (b)
    5 .375   05/15/13         142,545  
  135    
Norfolk Southern Corp. 
    5 .75   01/15/16         133,088  
                                 
                              597,687  
                                 
       
Restaurants (0.1%)
                       
  55    
McDonalds Corp. 
    5 .00   02/01/19         56,677  
  280    
Tricon Global Restaurants, Inc. 
    8 .875   04/15/11         295,329  
                                 
                              352,006  
                                 
 
See Notes to Financial Statements

20


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
       
Savings Banks (0.1%)
                       
$ 355    
Household Finance Corp. 
    6 .375 %   10/15/11       $ 365,518  
  475    
Sovereign Bancorp, Inc. 
    1 .728(c)   03/23/10         430,441  
                                 
                              795,959  
                                 
       
Services to the Health Industry (0.0%)
                       
  230    
Medco Health Solutions
    7 .125   03/15/18         222,663  
                                 
                                 
       
Steel (0.0%)
                       
  290    
Arcelormittal – 144A (Luxembourg) (b)
    6 .125   06/01/18         227,273  
                                 
                                 
       
Tobacco (0.1%)
                       
  175    
Bat International Finance PLC
    9 .50   11/15/18         192,300  
  330    
Phillip Morris International
    5 .65   05/16/18         330,795  
  160    
Reynolds American Inc. 
    6 .50   07/15/10         158,756  
                                 
                              681,851  
                                 
       
Trucks/Construction/Farm Machinery (0.1%)
                       
  95    
Caterpillar Financial Services
    4 .90   08/15/13         95,073  
  185    
John Deere Capital Corp. 
    5 .75   09/10/18         182,475  
                                 
                              277,548  
                                 
       
Wireless Telecommunications (0.1%)
                       
  255    
Vodafone Group PLC
    5 .625   02/27/17         248,643  
                                 
        Total Corporate Bonds (Cost $48,479,433)     44,638,790  
                 
                     
        U.S. Government Agencies – Mortgage-Backed Securities (2.2%)            
        Federal Home Loan Mortgage Corp.                        
  350           5 .00   02/15/39         355,414  
  46           7 .50   10/01/32         49,331  
        Federal Home Loan Mortgage Corp. (PC) Gold                        
  458           6 .50   07/01/29 –
05/01/32
        481,278  
  23           7 .50   01/01/30         24,305  
        Federal National Mortgage Association                        
  2,700           5 .00   (f)         2,745,141  
  5,150           5 .50   (f)         5,271,509  
  1,000           6 .00   02/15/39         1,030,781  
  157           6 .50   12/01/29         165,287  
 
See Notes to Financial Statements

21


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
$ 1,168           7 .00 %   12/01/17 –
02/01/31
      $ 1,241,728  
  230           7 .50   11/01/29 –
05/01/32
        245,060  
  886           8 .00   05/01/26 –
02/01/32
        941,651  
                                 
        Total U.S. Government Agencies – Mortgage-Backed Securities (Cost $12,609,171)         12,551,485  
                     
                                 
        U.S. Government Agencies & Obligations (5.9%)                        
        Federal Home Loan Mortgage Corp.                        
  1,800           2 .50   01/07/14         1,798,967  
  3,672           4 .875   06/13/18         3,998,948  
  150           5 .00   05/11/17         162,916  
  160           5 .125   11/17/17         176,175  
  4,945           5 .50   08/23/17         5,550,090  
        Federal National Mortgage Association                        
  500           6 .75   03/15/31         655,184  
        U.S. Treasury Bond                        
  300           4 .50   02/15/36         340,219  
  2,870           4 .50   05/15/38         3,333,686  
  408           8 .75   05/15/17         572,284  
  999           8 .875   08/15/17         1,417,020  
  163           9 .125   05/15/18         239,470  
        U.S. Treasury Note                        
  500           5 .375   02/15/31         606,875  
  729           3 .75   11/15/18         785,274  
  1,509           1 .50   12/31/13         1,487,427  
  1,400           1 .75   01/31/14         1,392,346  
        U.S. Treasury Strip                        
  5,790           0 .00   11/15/19         3,830,166  
  2,790           0 .00   05/15/21         1,695,346  
  3,685           0 .00   11/15/21         2,186,023  
  4,320           0 .00   11/15/21         2,557,587  
                                 
        Total U.S. Government Agencies & Obligations (Cost $31,928,984)         32,786,003  
                     
                                 
        Asset-Backed Securities (0.6%)                        
       
Capital Auto Receivables Asset Trust
                       
  784    
2006-2 A3A
    4 .98   05/15/11         766,359  
  572    
2007-SN1 A3B
    0 .393(c)   07/15/10         541,064  
  245    
Capital One Auto Finance Trust 2006-C A3A
    5 .07   07/15/11         238,952  
  24    
Caterpillar Financial Asset Trust 2006-A A3
    5 .57   05/25/10         23,689  
 
See Notes to Financial Statements

22


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                 
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
$ 300    
CIT Equipment Collateral 2006-VT2 A3
    5 .07 %   02/20/10       $ 299,424  
  35    
Ford Credit Auto Owner Trust 2006-A A3
    5 .05   03/15/10         34,482  
  388    
GS Auto Loan Trust 2006-1 A3
    5 .37   12/15/10         386,925  
       
Harley Davidson Motorcycle Trust
                       
  558    
2005-3 A2
    4 .41   06/15/12         539,745  
  381    
2005-2 A2
    4 .07   02/15/12         369,758  
  117    
Hertz Vehicle Financing LLC 2005-2A A2 – 144A*
    4 .93   02/25/10         116,255  
                                 
        Total Asset-Backed Securities (Cost $3,403,427)     3,316,653  
                 
                                 
        Collateralized Mortgage Obligations (0.2%)                        
       
U.S. Government Agencies (0.2%)
                       
  557    
Federal Home Loan Mortgage Corp. Whole Loan 2005-S001 2A2
    0 .539(c)   09/25/45         288,393  
       
Federal National Mortgage Association
                       
  842    
2006-28 1A1
    0 .499(c)   03/25/36         745,934  
  2,427    
2005-68 XI (IO) (g)
    6 .00   08/25/35         198,607  
                                 
       
Total U.S. Government Agencies
    1,232,934  
                 
                                 
       
Private Issues (0.0%)
                       
  450    
American Home Mortgage Investment Trust 2006-1 1M1 (g)
    0 .769(c)   03/25/46         2,430  
  350    
Harborview Mortgage Loan Trust 2006-SB1 M1 (g)
    0 .714(c)   12/19/36         1,400  
  500    
Master Adjustable Rate Mortgages Trust 2007-3 1M1 (g)
    1 .239(c)   05/25/47         2,200  
                                 
       
Total Private Issues
    6,030  
                 
        Total Collateralized Mortgage Obligations (Cost $2,826,237)     1,238,964  
                 
                                 
        Foreign Government Obligation (0.1%)                        
  655    
Brazilian Government Interational Bond (Cost $668,104)
    6 .00   01/17/17         651,725  
                                 
                                 
        Investment Trust/Mutual Funds(1.1%)                        
  252,700    
Ishares FTSE/Xinhua China 25 Index Fund (Cost $7,329,083)
    6,345,297  
                 
                                 
NUMBER OF
                   
CONTRACTS                    
 
        Call Options Purchased (0.0%)                        
  205    
90 day Euro $ Futures September/2009 @ 97.75 (Cost $158,656)
    98,656  
                 
 
 
See Notes to Financial Statements

23


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                                   
PRINCIPAL
                   
AMOUNT IN
      COUPON
  MATURITY
       
THOUSANDS       RATE   DATE       VALUE
        Short-Term Investments (29.2%)                          
        U.S. Government Obligations (h) (i) (0.9%)                          
$ 5,249    
U.S. Treasury Bills (Cost $5,246,912)
    0 .04–0.33 %   05/15/09       $ 5,246,777  
                                   
 
                                   
NUMBER OF
                   
SHARES (000)                    
 
        Investment Company (j) (28.3%)                          
  158,738    
Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class (Cost $158,737,704)
            158,737,704  
                         
        Total Short-Term Investments (Cost $163,984,616)             163,984,481  
                         
        Total Investments (Cost $594,430,234) (k) (l)       104.9%     588,628,356  
        Total Written Options Outstanding (Premiums received $48,106)       (0.0)     (28,669 )
        Liabilities in Excess of Other Assets       (4.9)     (27,464,315 )
                         
        Net Assets       100.0%   $ 561,135,372  
                         
                                   
ADR American Depositary Receipt.
ARM Adjustable Rate Mortgage. Interest rate in effect as of January 31, 2009.
IO Interest Only Security.
MTN Medium Term Note.
PC Participation Certificate.
(a) Non-income producing security.
(b) Resale is restricted to qualified institutional investors.
(c) Floating rate security. Rate shown is the rate in effect at January 31, 2009.
(d) Foreign security issued with perpetual maturity.
(e) Security issued with perpetual maturity.
(f) Security was purchased on a forward commitment basis with an approximate principal amount and no definite maturity date; the actual principal amount and maturity date will be determined upon settlement.
(g) Securities with a total market value of $204,637 have been valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund’s Trustees. Such fair value measurements may be level 2 measurements if observable inputs are available. See note 9.
(h) A portion of this security has been physically segregated in connection with open future contracts in the amount of $408,185.
(i) Purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield.
(j) See Note 4 to the financial statements regarding investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class.
(k) Securities have been designated as collateral in amount equal to $76,423,578 in connection with open futures and swap contracts.
(l) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $59,833,937 and the aggregate gross unrealized depreciation is $65,616,378, resulting in net unrealized depreciation of $5,782,441.
 
See Notes to Financial Statements

24


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
Options Written as of January 31, 2009:
 
 
                                     
NUMBER OF
      STRIKE
  EXPIRATION
       
CONTRACTS   DESCRIPTION   PRICE   DATE   PREMIUM   VALUE
  108     90 day Euro$ Futures   98.25     September 2009     $ 33,263     $ 19,575  
  97     90 day Euro$ Futures   98.50     September 2009       14,843       9,094  
                                     
                                $ 28,669  
                                     
 
Futures Contracts Open at January 31, 2009:
 
 
                             
                UNREALIZED
NUMBER OF
      DESCRIPTION, DELIVERY
  UNDERLYING FACE
  APPRECIATION
CONTRACTS   LONG/SHORT   MONTH AND YEAR   AMOUNT AT VALUE   (DEPRECIATION)
  126     Long   U.S.Treasury Notes 2 Year,
March 2009
  $ 27,420,750     $ 111,031  
  133     Long   U.S.Treasury Notes 5 Year,
March 2009
    15,716,860       (92,079 )
  29     Long   U.S.Treasury Bonds 20 Year,
March 2009
    3,674,391       (317,018 )
  63     Short   U.S.Treasury Notes 10 Year,
March 2009
    (7,727,344 )     139,140  
                             
            Net Unrealized Depreciation   $ (158,926 )
                     
 
See Notes to Financial Statements

25


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
Interest Rate Swap Contracts Open at January 31, 2009:
 
 
                             
    NOTIONAL
  PAYMENTS
  PAYMENTS
      UNREALIZED
    AMOUNT
  RECEIVED
  MADE
  TERMINATION
  APPRECIATION
COUNTERPARTY   (000’S)   BY FUND   BY FUND   DATE   (DEPRECIATION)
Bank of America N.A.***   $ 3,030     Fixed Rate 5.07%   Floating Rate 0.00#%   April 14, 2018   $ 185,406  
Bank of America N.A.***     2,420     Fixed Rate 4.983   Floating Rate 0.00#   April 15, 2018     139,344  
Bank of America N.A.     3,223     Fixed Rate 5.37   Floating Rate 3.08#   February 12, 2018     242,531  
Bank of America N.A.***     11,978     Fixed Rate 4.779   Floating Rate 0.00#   October 10, 2018     533,979  
Bank of America N.A.***     14,692     Fixed Rate 5.558   Floating Rate 0.00#   July 24, 2023     731,221  
Bank of America N.A.***     9,481     Fixed Rate 4.798   Floating Rate 0.00#   October 7, 2023     232,858  
Bank of America N.A.***     5,420     Fixed Rate 3.44   Floating Rate 0.00#   October 7, 2023     (107,533 )
Goldman Sachs International***     10,920     Fixed Rate 5.63   Floating Rate 0.00#   February 28, 2018     934,643  
Goldman Sachs International***     4,741     Fixed Rate 4.79   Floating Rate 0.00#   October 7, 2023     115,244  
JPMorgan Chase Bank N.A. New York     5,290     Fixed Rate 3.507   Floating Rate 0.00#   January 13, 2024     (93,210 )
Merrill Lynch & Co     3,230     Fixed Rate 5.00   Floating Rate 0.00#   April 15, 2018     188,309  
Bank of America N.A.***   EUR 5,498     Fixed Rate 4.415   Floating Rate 0.00ˆ   October 7, 2018     (16,613 )
Deutsche Bank AG Frankfurt***     8,255     Fixed Rate 4.958   Floating Rate 0.00ˆ   July 24, 2018     212,872  
Deutsche Bank AG Frankfurt***     2,080     Fixed Rate 5.268   Floating Rate 0.00ˆ   July 3, 2023     36,619  
Deutsche Bank AG Frankfurt***     9,765     Fixed Rate 5.239   Floating Rate 0.00ˆ   July 9, 2023     160,664  
Deutsche Bank AG Frankfurt***     8,875     Fixed Rate 5.24   Floating Rate 0.00ˆ   July 10, 2023     146,475  
Bank of America N.A.***   $ 3,880     Floating Rate 0.00#   Fixed Rate 5.47   April 14, 2023     (181,894 )
Bank of America N.A.***     2,870     Floating Rate 0.00#   Fixed Rate 5.38   April 15, 2023     (125,763 )
Bank of America N.A.***     11,442     Floating Rate 0.00#   Fixed Rate 5.38   July 24, 2018     (813,869 )
Bank of America N.A.     2,340     Floating Rate 0.00#   Fixed Rate 3.115   January 13, 2019     57,353  
Bank of America N.A.***     7,580     Floating Rate 0.00#   Fixed Rate 4.80   October 7, 2018     (345,180 )
Bank of America N.A.***     1,280     Floating Rate 0.00#   Fixed Rate 2.905   January 13, 1939     49,203  
Bank of America N.A.     4,138     Floating Rate 0.000#   Fixed Rate 5.815   February 12, 2023     (243,604 )
Bank of America N.A.     2,722     Floating Rate 0.000#   Fixed Rate 4.243   October 10, 2038     (444,639 )
Bank of America N.A.***   EUR 6,900     Floating Rate 0.00ˆ   Fixed Rate 4.39   October 7, 2023     112,377  
Barclays Bank***   $ 4,320     Floating Rate 0.000#   Fixed Rate 0.000**   November 15, 2019     (389,517 )
Barclays Bank***     3,685     Floating Rate 0.000#   Fixed Rate 0.000**   November 15, 2021     (358,279 )
Deutsche Bank AG Frankfurt***   EUR 1,660     Floating Rate 0.00ˆ   Fixed Rate 4.934   July 1, 2018     (41,998 )
Deutsche Bank AG Frankfurt***     7,785     Floating Rate 0.00ˆ   Fixed Rate 4.861   July 9, 2018     (166,862 )
 
See Notes to Financial Statements

26


 

Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
 
                             
    NOTIONAL
  PAYMENTS
  PAYMENTS
      UNREALIZED
    AMOUNT
  RECEIVED
  MADE
  TERMINATION
  APPRECIATION
COUNTERPARTY   (000’S)   BY FUND   BY FUND   DATE   (DEPRECIATION)
Deutsche Bank AG Frankfurt***     7,065     Floating Rate 0.00ˆ   Fixed Rate 4.86   July 10, 2018     (150,886 )
Deutsche Bank AG Frankfurt***     10,360     Floating Rate 0.00ˆ   Fixed Rate 5.188   July 24, 2023     (150,025 )
Goldman Sachs International***   $ 3,789     Floating Rate 0.00#   Fixed Rate 4.80   October 7, 2018     (172,551 )
Goldman Sachs International***     14,010     Floating Rate 0.00#   Fixed Rate 6.035   February 28, 2023     (928,863 )
JPMorgan Chase Bank N.A. New York***     1,250     Floating Rate 0.00#   Fixed Rate 2.977   January 13, 2039     41,737  
JPMorgan Chase Bank N.A. New York***     2,280     Floating Rate 0.00#   Fixed Rate 3.147   January 13, 2019     52,918  
JPMorgan Chase Bank N.A. New York***     2,790     Floating Rate 0.000#   Fixed Rate 0.000**   May 15, 2021     (281,018 )
JPMorgan Chase Bank N.A. New York***     4,320     Floating Rate 0.000#   Fixed Rate 0.000**   November 15, 2021     (399,044 )
Merrill Lynch & Co     4,030     Floating Rate 0.00#   Fixed Rate 5.395   April 15, 2023     (178,650 )
UBS AG***     1,470     Floating Rate 0.000#   Fixed Rate 0.000**   November 15, 2019     (111,805 )
                             
    Net Unrealized Depreciation   $ (1,528,050 )
             
EUR Euro.
# Floating rate based on USD-3 Month LIBOR.
ˆ Floating rate based on EUR-6 Month EURIBOR.
** Portfolio will make payments of $1,650,364, $1,675,253, $1,221,824, $1,675,253 and $550,203, respectively on termination date.
*** Forward interest rate swap. Periodic payments on specified notional contract amount with future effective date, unless terminated earlier.
 
Credit Default Swap Contracts Open at January 31, 2009:
 
 
                                                       
                                CREDIT
        NOTIONAL
                      RATING OF
SWAP COUNTERPARTY &
  BUY/SELL
  AMOUNT
  INTEREST
  TERMINATION
  UNREALIZED
  UPFRONT
      REFERENCE
REFERENCE OBLIGATION   PROTECTION   (000’S)   RATE   DATE   APPRECIATION   PAYMENTS   VALUE   OBLIGATION†
                                (Unaudited)
JPMorgan Chase & Co.
Nordstrom Inc. 
  Buy   $ 210       1.07 %   March 20, 2018   $ 55,006               55,006     A−
Bank of America
CDX-NAIGS11V1-5Y
  Buy     4,250       1.50     December 20, 2013     15,067               15,067     NR
Bank of America
Sealed Air Corp. 
  Buy     90       1.12     March 20, 2018     17,264               17,264     BB+
                                                       
    Total Credit Default Swaps   $ 87,337                        
                                   
Credit ratings as issued by Standard and Poor’s.
NR Not rated
 
See Notes to Financial Statements

27


 

Morgan Stanley Strategist Fund
Financial Statements
 
Statement of Assets and Liabilities
January 31, 2009 (unaudited)
         
Assets:
       
Investments in securities, at value
(cost $435,692,530)
    $429,890,652  
Investment in affiliate, at value (cost $158,737,704)
    158,737,704  
Unrealized depreciation on open swap contracts
    4,261,091  
Cash
    145,471  
Receivable for:
       
Investments sold
    12,532,404  
Interest
    1,016,806  
Dividends
    235,650  
Shares of beneficial interest sold
    170,273  
Dividends from affiliate
    101,539  
Periodic interest payment on open swap contracts
    26,200  
Foreign withholding taxes reclaimed
    22,837  
Prepaid expenses and other assets
    27,267  
         
Total Assets
    607,167,894  
         
Liabilities:
       
Written call options outstanding, at value (premiums received $48,106)
    28,669  
Unrealized depreciation on open swap contracts
    5,701,804  
Payable for:
       
Investments purchased
    33,439,304  
Shares of beneficial interest redeemed
    776,629  
Distribution fee
    208,413  
Investment advisory fee
    173,171  
Transfer agent fee
    48,774  
Administration fee
    39,249  
Periodic interest payment on open swap contracts
    37,722  
Premium received on swap contracts
    102,197  
Swap contracts collateral due to brokers
    5,232,000  
Accrued expenses and other payables
    244,590  
         
Total Liabilities
    46,032,522  
         
Net Assets
    $561,135,372  
         
Composition of Net Assets:
       
Paid-in-capital
    $611,360,925  
Net unrealized depreciation
    (7,381,615 )
Accumulated undistributed net investment income
    2,194,042  
Accumulated net realized loss
    (45,037,980 )
         
Net Assets
    $561,135,372  
         
Class A Shares:
       
Net Assets
    $400,756,421  
Shares Outstanding (unlimited authorized, $.01 par value)
    28,360,057  
Net Asset Value Per Share
    $14.13  
         
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)
    $14.91  
         
Class B Shares:
       
Net Assets
    $101,004,604  
Shares Outstanding (unlimited authorized, $.01 par value)
    7,117,575  
Net Asset Value Per Share
    $14.19  
         
Class C Shares:
       
Net Assets
    $34,534,014  
Shares Outstanding (unlimited authorized, $.01 par value)
    2,454,935  
Net Asset Value Per Share
    $14.07  
         
Class I Shares:
       
Net Assets
    $24,840,333  
Shares Outstanding (unlimited authorized, $.01 par value)
    1,755,106  
Net Asset Value Per Share
    $14.15  
         
 
See Notes to Financial Statements

28


 

Morgan Stanley Strategist Fund
Financial Statements continued
 
Statement of Operations
For the six months ended January 31, 2009 (unaudited)
 
         
Net Investment Income:
       
Income
       
Dividends (net of $71,266 foreign withholding tax)
  $ 3,858,462  
Interest
    3,748,022  
Dividends from affiliate
    1,420,631  
         
Total Income
    9,027,115  
         
Expenses
       
Investment advisory fee
    1,343,630  
Distribution fee (Class A shares)
    548,935  
Distribution fee (Class B shares)
    676,303  
Distribution fee (Class C shares)
    190,627  
Transfer agent fees and expenses
    456,682  
Administration fee
    255,929  
Shareholder reports and notices
    69,685  
Professional fees
    41,946  
Custodian fees
    20,663  
Registration fees
    15,090  
Trustees’ fees and expenses
    10,453  
Other
    20,084  
         
Total Expenses
    3,650,027  
Less: rebate from Morgan Stanley affiliated cash sweep (Note 4)
    (90,338 )
         
Net Expenses
    3,559,689  
         
Net Investment Income
    5,467,426  
         
Realized and Unrealized Gain (Loss):
       
Realized Loss on:
       
Investments
    (26,492,554 )
Futures contracts
    (427,294 )
Option contracts
    107,111  
Swap contracts
    6,761,053  
Foreign exchange transactions
    (10,692 )
         
Net Realized Loss
    (20,062,376 )
         
Change in Unrealized Appreciation/Depreciation on:
       
Investments
    (132,121,057 )
Futures contracts
    (285,189 )
Swap contracts
    (4,247,215 )
Option contracts
    (60,423 )
Net translation of other assets and liabilities denominated in foreign currencies
    (2,395 )
         
Net Change in Unrealized Appreciation/Depreciation
    (136,716,279 )
         
Net Loss
    (156,778,655 )
         
Net Decrease
  $ (151,311,229 )
         
 
See Notes to Financial Statements

29


 

Morgan Stanley Strategist Fund
Financial Statements continued
 
Statements of Changes in Net Assets
                 
    FOR THE SIX
  FOR THE YEAR
    MONTHS ENDED
  ENDED
    JANUARY 31, 2009   JULY 31, 2008
    (unaudited)    
 
Increase (Decrease) in Net Assets:
               
Operations:
               
Net investment income
  $ 5,467,426     $ 17,749,069  
Net realized gain (loss)
    (20,062,376 )     20,912,376  
Net change in unrealized appreciation/depreciation
    (136,716,279 )     (73,452,164 )
                 
Net Decrease
    (151,311,229 )     (34,790,719 )
                 
Dividends and Distributions to Shareholders from:
               
Net investment income
               
Class A shares
    (4,979,479 )     (13,108,531 )
Class B shares
    (976,744 )     (3,878,324 )
Class C shares
    (289,493 )     (822,389 )
Class I shares
    (327,684 )     (1,369,847 )
Net realized gain
               
Class A shares
    (1,409,211 )     (32,415,834 )
Class B shares
    (400,944 )     (14,658,763 )
Class C shares
    (120,457 )     (2,856,966 )
Class I shares
    (90,001 )     (3,877,507 )
                 
Total Dividends and Distributions
    (8,594,013 )     (72,988,161 )
                 
Net decrease from transactions in shares of beneficial interest
    (31,206,859 )     (84,641,818 )
                 
Net Decrease
    (191,112,101 )     (192,420,698 )
Net Assets:
               
Beginning of period
    752,247,473       944,668,171  
                 
End of Period
(Including accumulated undistributed net investment income of $2,194,042 and $3,300,016, respectively)
  $ 561,135,372     $ 752,247,473  
                 
 
See Notes to Financial Statements

30


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited)
 
1. Organization and Accounting Policies
Morgan Stanley Strategist Fund (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company. The Fund’s investment objective is to maximize the total return of its investments. The Fund was organized as a Massachusetts business trust on August 5, 1988 and commenced operations on October 31, 1988. On July 28, 1997, the Fund converted to a multiple class share structure.
 
The Fund offers Class A shares, Class B shares, Class C shares and Class I shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within eighteen months, six years and one year, respectively. Class I shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses.
 
During the six months ended January 31, 2009, the Fund assessed a 2% redemption fee on Class A shares, Class B shares, Class C shares, and Class I shares, which was paid directly to the Fund, for shares redeemed or exchanged within seven days of purchase, subject to certain exceptions. The redemption fee was designed to protect the Fund and its remaining shareholders from the effects of short-term trading. The Board of Trustees has approved the elimination of redemption fees, effective January 21, 2009.
 
The following is a summary of significant accounting policies:
 
A. Valuation of Investments — (1) an equity portfolio security listed or traded on the New York Stock Exchange (“NYSE”) or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) futures are valued at the latest price published by the commodities exchange on which they trade; (6) listed options are valued at the latest sale price on the exchange on which they are listed unless no sales of such options have taken place that day, in which case they are valued at the mean between their latest bid asked price; (7) credit default/interest rate swaps are marked-to-market daily based upon quotations from market makers; (8) when market quotations are not readily available including circumstances under which Morgan Stanley

31


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
Investment Advisors Inc. (the “Investment Adviser”) determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security’s market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund’s Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund’s Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (9) certain portfolio securities may be valued by an outside pricing service approved by the Fund’s Trustees; (10) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (11) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost, which approximates market value.
 
B. Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities and are included in interest income. Interest income is accrued daily.
 
C. Multiple Class Allocations — Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class.
 
D. Futures Contracts — A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains and losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

32


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
E. Options — When the Fund writes a call or put option, an amount equal to the premium received is included in the Fund’s Statement of Assets and Liabilities as a liability which is subsequently marked-to-market to reflect the current market value of the option written. If a written option either expires or the Fund enters into a closing purchase transaction, the Fund realizes a gain or loss without regard to any unrealized gain or loss on the underlying security or currency and the liability related to such option is extinguished. If a written call option is exercised, the Fund realizes a gain or loss from the sale of the underlying security or currency and the proceeds from such sale are increased by the premium originally received. If a written put option is exercised, the amount of the premium originally received reduces the cost of the security, which the Fund purchases upon exercise of the option. By writing a covered call option, the Fund, in exchange for the premium, foregoes the opportunity for capital appreciation above the exercise price, should the market price of the underlying security increase. By writing a put option, the Fund, in exchange for the premium, accepts the risk of having to purchase a security at an exercise price that is above the current market price.
 
When the Fund purchases a call or put option, the premium paid is recorded as an investment which is subsequently marked-to-market to reflect the current market value. If a purchased option expires, the Fund will realize a loss to the extent of the premium paid. If the Fund enters into a closing sale transaction, a gain or loss is realized for the difference between the proceeds from the sale and the cost of the option. If a put option is exercised, the cost of the security or currency sold upon exercise will be increased by the premium originally paid. If a call option is exercised, the cost of the security purchased upon exercise will be increased by the premium originally paid. The maximum exposure to loss for any purchased option is limited to the premium initially paid for the option.
 
Transactions in written options for the six months ended January 31, 2009 were as follows:
 
                 
    CONTRACT
   
    AMOUNT   PREMIUM
Options written, outstanding at beginning of the period
    313     $ 155,671  
Options written
    306       98,338  
Options closed
    101       50,232  
Options written, outstanding at end of period
    205       48,106  
 
F. Foreign Currency Translation and Forward Foreign Currency Contracts — The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts (“forward contracts”) are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income

33


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities. Forward contracts are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are recorded as unrealized foreign currency gain or loss. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery.
 
G. Swaps — The Fund adopted the provisions of the FASB Staff Position Paper No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45 (“FSP FAS 133-1” and “FIN 45-4”), effective December 31, 2008. FSP FAS 133-1 and FIN 45-4 requires the seller of credit derivatives to provide additional disclosure about its credit derivatives.
 
The Fund may enter into credit default swap contracts, a type of credit derivative, for hedging purposes or to gain exposure to a credit or index of credits in which the Fund may otherwise invest. A credit default swap is an agreement between two parties to exchange the credit risk of an issuer or index of issuers. A buyer of a credit default swap is said to buy protection by paying periodic fees in return for a contingent payment from the seller if the issuer has a credit event such as bankruptcy, a failure to pay outstanding obligations or deteriorating credit while the swap is outstanding. A seller of a credit default swap is said to sell protection and thus collects the periodic fees and profits if the credit of the issuer remains stable or improves while the swap is outstanding. The seller in a credit default swap contract would be required to pay an agreed-upon amount, to the buyer in the event of an adverse credit event of the issuer. This agreed-upon amount approximates the notional amount of the swap as disclosed in the table following the Portfolio of Investments and is estimated to be the maximum potential future payment that the seller could be required to make under the credit default swap contract. In the event of an adverse credit event, the seller generally does not have any contractual remedies against the issuer or any other third party. However, if a physical settlement is elected, the seller would receive the defaulted credit and, as a result, become a creditor of the issuer.
 
The current credit rating of each individual issuer is listed in the table following the Portfolio of Investments and serves as an indicator of the current status of the payment/performance risk of the credit derivative. Alternatively, for credit default swaps on an index of credits, the quoted market prices and current values serve as an indicator of the current status of the payment/performance risk of the credit derivative. Generally, lower credit ratings and increasing market values, in absolute terms, represent a deterioration of the credit and a greater likelihood of an adverse credit event of the issuer.
 
The Fund accrues for the periodic fees on credit default swaps on a daily basis with the net amount accrued recorded within realized gain/loss on swap contracts on the Statement of Operations. Net unrealized gains are recorded as an asset or net unrealized losses are reported as a liability on the Statement of Assets and

34


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
Liabilities. The change in value of the swap contracts is reported as unrealized gains or losses on the Statement of Operations. Payments received or made upon entering into a credit default swap contract, if any, are recorded as realized gain or loss on the Statement of Operations upon termination or maturity of the swap.
 
The Fund may also enter into interest rate swaps primarily to preserve a return or spread on a particular investment or portion of its portfolio, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps are contractual agreements to exchange periodic interest payment streams calculated on a predetermined notional principal amount. Interest rate swaps generally involve one party paying a fixed interest rate and the other party paying a variable rate. The Fund will usually enter into interest rate swaps on a net basis, i.e, the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund accrues the net amount with respect to each interest rate swap on a daily basis. This net amount is recorded within realized gain/loss on swap contracts on the Statement of Operations. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts.
 
Swap agreements are not entered into or traded on exchanges and there is no central clearing or guaranty function for swaps. Therefore, swaps are subject to the risk of default or non-performance by the counterparty. If there is a default by the counterparty to a swap agreement, the Fund will have contractual remedies pursuant to the agreements related to the transaction. Counterparties are required to pledge collateral daily (based on the valuation of each swap) on behalf of the Fund with a value approximately equal to the amount of any unrealized gain. Reciprocally, when the Fund has an unrealized loss on a swap contract, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. For cash collateral received, the Fund pays a monthly fee to the counterparty based on the effective rate for Federal Funds.
 
H. Securities Lending — Fund may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund receives cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily, by the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
 
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in high-quality short-term investments. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the

35


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
lending agent. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
 
As of January 31, 2009, there were no securities out on loan.
 
I. Federal Income Tax Policy — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax is required. The Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund follows the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes. FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. There are no unrecognized tax benefits in the accompanying financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statement of Operations. Each of the tax years in the four year period ended July 31, 2008, remains subject to examination by taxing authorities.
 
J. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.
 
K. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.
2. Investment Advisory/Administration Agreement
Pursuant to an Investment Advisory Agreement with the Investment Adviser, the Fund pays an advisory fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.42% to the portion of the daily net assets not exceeding $1.5 billion; and 0.395% to the portion of the daily net assets exceeding $1.5 billion.
 
Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the “Administrator”), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% to the Fund’s daily net assets.
 
Under an agreement between the Administrator and State Street Bank and Trust Company (“State Street”), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.

36


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
Effective October 23, 2006, the Investment Adviser has agreed to cap the Fund’s total operating expenses, to the extent that such total operating expenses exceed 0.92%, 1.67%, 1.64% and 0.67% for Class A, Class B, Class C and Class I, respectively, for a period of two years.
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the “Distributor”), an affiliate of the Investment Adviser and Administrator. The Fund has adopted a Plan of Distribution (the “Plan”) pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A — up to 0.25% of the average daily net assets of Class A shares; (ii) Class B — up to 1.0% of the average daily net assets of Class B shares; and (iii) Class C — up to 1.0% of the average daily net assets of Class C shares.
 
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $12,817,853 at January 31, 2009.
 
In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors and other authorized financial representatives at the time of sale may be reimbursed in the subsequent calendar year. For the six months ended January 31, 2009, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.
 
The Distributor has informed the Fund that for the six months ended January 31, 2009, it received contingent deferred sales charges from certain redemptions of the Fund’s Class A shares, Class B shares and Class C shares of $411, $101,395 and $3,071, respectively and received $44,842 in front-end sales charges from sales of the Fund’s Class A shares. The respective shareholders pay such charges which are not an expense of the Fund.
4. Security Transactions and Transactions with Affiliates
The Fund invests in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class, an open-end management investment company managed by an affiliate of the Investment Adviser. Investment

37


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class. For the six months ended January 31, 2009, advisory fees paid were reduced by $90,338 relating to the Fund’s investment in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class. Income distributions earned by the Fund are recorded as “dividends from affiliate” in the Statement of Operations and totaled $1,420,631 for the six months ended January 31, 2009. During the year ended January 31, 2009, cost of purchases and sales of investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class aggregated $135,328,706 and $119,007,480, respectively.
 
The cost of purchases and proceeds from sales/maturities/prepayments of portfolio securities, excluding short-term investments, for six months ended January 31, 2009 aggregated $208,236,777, and $231,596,352, respectively. Included in the aforementioned are purchases and sales/maturities/prepayments of U.S. Government securities of $120,982,842 and $140,831,116, respectively.
 
For six months ended January 31, 2009, the Fund incurred brokerage commissions of $83,234 with Morgan Stanley & Co., Inc. an affiliate of the Investment Adviser, Administrator and Distributor, for portfolio transactions executed on behalf of the Fund.
 
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund’s transfer agent.
 
The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. The Trustees voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Aggregate pension costs for the six months ended January 31, 2009, included in Trustees’ fees and expenses in the Statement of Operations amounted to $72,506. At January 31, 2009, the Fund had an accrued pension liability of $4,199, which is included in accrued expenses in the Statement of Assets and Liabilities.
 
The Fund has an unfunded Deferred Compensation Plan (the “Compensation Plan”) which allows each independent Trustee to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these

38


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.
5. Purposes of and Risks Relating to Certain Financial Instruments
For hedging and investment purposes, the Fund may engage in transactions in listed and over-the counter options and interest rate futures or in the case of forward contracts, to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities (“derivative instruments”). These derivative instruments involve elements of market risk in excess of the amounts reflected in the Statement of Asset and Liabilities. The Fund bears the risk of an unfavorable change in the value of underlying securities or currencies. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
 
The Fund may enter into credit default swaps for hedging purposes to add leverage to its portfolio or to gain exposure to a credit in which the Fund may otherwise invest. Credit default swaps may involve greater risks than if a Fund had invested in the issuer directly. Credit default swaps are subject to general market risk, counterparty risk and credit risk. If the Fund is a buyer and no credit event occurs, it will lose its investment. In addition, if the Fund is a seller and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received may be less than the maximum payout amount it pays to the buyer, resulting in a loss to the Fund.
 
The Fund may enter into interest rate swaps and may purchase or sell interest rate caps, floors and collars. The Fund expects to enter into these transactions primarily to manage interest rate risk, hedge portfolio positions and preserve a return or spread on a particular investment or portion of its portfolio. The Fund may also enter into these transactions to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swap transactions are subject to market risk, risk of default by the other party to the transaction, risk of imperfect correlation and manager risk. Such risks may exceed the related amounts shown in the Statement of Assets and Liabilities.
 
The Fund may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
 
The Fund may invest in mortgage securities, including securities issued by Federal National Mortgage Assoc. (“FNMA”) and Federal Home Loan Mortgage Corp. (FHLMC”). These are fixed income securities that derive their value from or represent interests in a pool of mortgages or mortgage securities. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a

39


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
mortgage-backed security and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. Sub-prime mortgages refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their mortgages. The securities are not backed by subprime borrowers.
 
Additionally, securities issued by FNMA and FHLMC are not backed by or entitled to the full faith and credit of the United States; rather they are supported by the right of the issuer to borrow from the Treasury.
 
On September 7, 2008, the Federal Housing Finance Agency (“FHFA”) was appointed as conservator of FNMA and FHLMC. In addition, the U.S. Department of the Treasury has agreed to provide capital as needed to ensure FNMA and FHLMC continue to provide liquidity to the housing and mortgage markets.
 
The Fund may enter into forward contracts to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Forward contracts and future contracts involve elements of market risk in excess of the amounts reflected in the Statement of Asset and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts or in the value of underlying securities. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
6. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the transfer agent.
7. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital.
 
As of July 31, 2008, the Fund had temporary book/tax differences primarily attributable to mark-to-market of open futures contracts, capital loss deferrals on straddles and wash sales and book amortization of discounts on debt securities.

40


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
8. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
 
                                 
    FOR THE SIX
  FOR THE YEAR
    MONTHS ENDED
  ENDED
    JANUARY 31, 2009   JULY 31, 2008
    (unaudited)        
    SHARES   AMOUNT   SHARES   AMOUNT
CLASS A SHARES
                               
Sold
    3,095,016     $ 47,059,137       2,676,572     $ 51,792,190  
Conversion from Class B
    256,652       4,046,110       973,963       18,843,355  
Reinvestment of dividends and distributions
    410,846       6,262,677       2,119,001       41,407,153  
Redeemed
    (3,312,282 )     (51,255,385 )     (4,768,148 )     (93,089,784 )
                                 
Net increase – Class A
    450,232       6,112,539       1,001,388       18,952,914  
                                 
CLASS B SHARES
                               
Sold
    526,885       8,121,982       839,251       16,410,483  
Conversion to Class A
    (255,561 )     (4,046,110 )     (970,523 )     (18,843,355 )
Reinvestment of dividends and distributions
    87,959       1,341,664       830,935       16,346,082  
Redeemed
    (2,911,233 )     (45,270,157 )     (4,425,092 )     (86,661,307 )
                                 
Net decrease – Class B
    (2,551,950 )     (39,852,621 )     (3,725,429 )     (72,748,097 )
                                 
CLASS C SHARES
                               
Sold
    295,410       4,397,808       399,259       7,644,804  
Reinvestment of dividends and distributions
    26,764       403,740       173,411       3,381,018  
Redeemed
    (349,998 )     (5,384,041 )     (442,862 )     (8,602,446 )
                                 
Net increase (decrease) – Class C
    (27,824 )     (582,493 )     129,808       2,423,376  
                                 
CLASS I SHARES
                               
Sold
    504,429       7,548,834       421,814       8,246,091  
Reinvestment of dividends and distributions
    27,359       415,524       251,969       4,950,989  
Redeemed
    (314,030 )     (4,848,642 )     (2,377,827 )     (46,467,091 )
                                 
Net increase (decrease) – Class I
    217,758       3,115,716       (1,704,044 )     (33,270,011 )
                                 
Net decrease in Fund
    (1,911,784 )   $ (31,206,859 )     (4,298,277 )   $ (84,641,818 )
                                 
9. Fair Valuation Measurements
The Fund adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), effective August 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. SFAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about

41


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.
 
  •  Level 1 — quoted prices in active markets for identical investments
 
  •  Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
 
  •  Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
 
The following is a summary of the inputs used as of January 31, 2009 in valuing the Fund’s investments carried at value:
 
                                 
        FAIR VALUE MEASUREMENTS AT JANUARY 31, 2009 USING
        QUOTED PRICES IN
  SIGNIFICANT
  SIGNIFICANT
        ACTIVE MARKET FOR
  OTHER OBSERVABLE
  UNOBSERVABLE
        IDENTICAL ASSETS
  INPUTS
  INPUTS
    TOTAL   (LEVEL 1)   (LEVEL 2)   (LEVEL 3)
Investments in Securities
  $ 588,529,700     $ 497,502,149       $90,822,914       $204,637  
Other Financial Instruments*
    (1,529,652 )     (88,939 )     (1,440,713)        
                                 
Total
  $ 587,000,048     $ 497,413,210       $89,382,201       $204,637  
                                 
* Other financial instruments include futures, options and swap contracts.

42


 

Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
 
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
 
         
    INVESTMENTS IN
    SECURITIES
Beginning Balance
       
Net purchases (sales)
  $ 6,736,580  
Transfers in and/or out
    (5,353,273 )
Change in unrealized appreciation/depreciation
    (672,988 )
Realized gains (losses)
    7,943,061  
Ending Balance
    (8,448,743 )
         
    $ 204,637  
         
Net change in unrealized appreciation/depreciation
from investments still held as of January 31, 2009
  $ (18,259 )
         
10. Accounting Pronouncement
On March 19, 2008, FASB released Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The application of SFAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of SFAS 161 and its impact on the Fund’s financial statements has not been determined.

43


 

Morgan Stanley Strategist Fund
Financial Highlights
 
Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
 
                                                         
    FOR THE SIX
                   
    MONTHS ENDED
  FOR THE YEAR ENDED JULY 31,
    JANUARY 31, 2009   2008   2007   2006   2005   2004
    (unaudited)                    
Class A Shares
                                                       
Selected Per Share Data:
                                                       
Net asset value, beginning of period
    $18.07       $20.57       $19.74         $18.31         $16.28         $14.72    
                                                 
Income (loss) from investment operations:
                                                       
Net investment income(1)
    0.15       0.45       0.50         0.34         0.27         0.20    
Net realized and unrealized gains (loss)
    (3.86 )     (1.23 )     2.07         1.40         2.03         1.58    
                                                 
Total income (loss) from investment operations
    (3.71 )     (0.78 )     2.57         1.74         2.30         1.78    
                                                 
Less dividends and distributions from:
                                                       
Net investment income
    (0.18 )     (0.49 )     (0.51 )       (0.31 )       (0.27 )       (0.22 )  
Net realized gain
    (0.05 )     (1.23 )     (1.23 )                          
                                                 
Total dividends and distributions
    (0.23 )     (1.72 )     (1.74 )       (0.31 )       (0.27 )       (0.22 )  
                                                 
Net asset value, end of period
    $14.13       $18.07       $20.57         $19.74         $18.31         $16.28    
                                                 
Total Return(2)
    (20.61 )%(5)     (4.27 )%     13.30 %       9.60 %       14.23 %       12.10 %  
Ratios to Average Net Assets(3):
                                                       
Total expenses (before expense offset)
    0.92 %(4)(6)     0.90 %(4)     0.92 %(4)       0.93 %       0.93 %       0.95 %  
Net investment income
    1.90 %(4)(6)     2.3 %(4)     2.44 %(4)       1.78 %       1.48 %       1.24 %  
Supplemental Data:
                                                       
Net assets, end of period, in thousands
     $400,756        $504,350        $553,395          $483,553          $510,016          $58,968    
Portfolio turnover rate
    42 %(5)     42 %     42 %       43 %       48 %       42 %  
(1) The per share amounts were computed using an average number of shares outstanding during the period.
(2) Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(3) Reflects overall Fund ratios for investment income and non-class specific expenses.
(4) Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class during the period. The rebate had an effect of 0.03% for the six months ended January 31, 2009, 0.02% for the year ended July 31, 2008 and less than 0.005% for year ended July 31, 2007.
(5) Not Annualized.
(6) Annualized.
 
See Notes to Financial Statements

44


 

Morgan Stanley Strategist Fund
Financial Highlights continued
 
                                                         
    FOR THE SIX
                   
    MONTHS ENDED
  FOR THE YEAR ENDED JULY 31,
    JANUARY 31, 2009   2008   2007   2006   2005   2004
    (unaudited)                    
Class B Shares
                                                       
Selected Per Share Data:
                                                       
Net asset value, beginning of period
    $18.14       $20.63       $19.79         $18.36         $16.29         $14.73    
                                                 
Income (loss) from investment operations:
                                                       
Net investment income(1)
    0.09       0.30       0.35         0.19         0.11         0.08    
Net realized and unrealized gain (loss)
    (3.87 )     (1.23 )     2.07         1.41         2.08         1.58    
                                                 
Total income (loss) from investment operations
    (3.78 )     (0.93 )     2.42         1.60         2.19         1.66    
                                                 
Less dividends and distributions from:
                                                       
Net investment income
    (0.12 )     (0.33 )     (0.35 )       (0.17 )       (0.12 )       (0.10 )  
Net realized gain
    (0.05 )     (1.23 )     (1.23 )                          
                                                 
Total dividends and distributions
    (0.17 )     (1.56 )     (1.58 )       (0.17 )       (0.12 )       (0.10 )  
                                                 
Net asset value, end of period
    $14.19       $18.14       $20.63         $19.79         $18.36         $16.29    
                                                 
Total Return(2)
    (20.92 )%(5)     (5.02 )%     12.50 %       8.72 %       13.49 %       11.24 %  
Ratios to Average Net Assets(3):
                                                       
Total expenses (before expense offset)
    1.67 %(4)(6)     1.66 %(4)     1.67 %(4)       1.68 %       1.68 %       1.71 %  
Net investment income
    1.15 %(4)(6)     1.54 %(4)     1.69 %(4)       1.03 %       0.73 %       0.48 %  
Supplemental Data:
                                                       
Net assets, end of period, in millions
     $101        $175        $276          $303          $398          $971    
Portfolio turnover rate
    42 %(5)     42 %     42 %       43 %       48 %       42 %  
(1) The per share amounts were computed using an average number of shares outstanding during the period.
(2) Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(3) Reflects overall Fund ratios for investment income and non-class specific expenses.
(4) Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class during the period. The rebate had an effect of 0.03% for the six months ended January 31, 2009, 0.02% for the year ended July 31, 2008 and less than 0.005% for year ended July 31, 2007.
(5) Not Annualized.
(6) Annualized.
 
See Notes to Financial Statements

45


 

Morgan Stanley Strategist Fund
Financial Highlights continued
 
                                                         
    FOR THE SIX
                   
    MONTHS ENDED
  FOR THE YEAR ENDED JULY 31,
    JANUARY 31, 2009   2008   2007   2006   2005   2004
    (unaudited)                    
Class C Shares
                                                       
Selected Per Share Data:
                                                       
Net asset value, beginning of period
    $17.99       $20.48       $19.66         $18.24         $16.21         $14.66    
                                                 
Income (loss) from investment operations:
                                                       
Net investment income(1)
    0.09       0.30       0.35         0.20         0.13         0.08    
Net realized and unrealized gain (loss)
    (3.84 )     (1.22 )     2.06         1.40         2.04         1.57    
                                                 
Total income (loss) from investment operations
    (3.75 )     (0.92 )     2.41         1.60         2.17         1.65    
                                                 
Less dividends and distributions from:
                                                       
Net investment income
    (0.12 )     (0.34 )     (0.36 )       (0.18 )       (0.14 )       (0.10 )  
Net realized gain
    (0.05 )     (1.23 )     (1.23 )                          
                                                 
Total dividends and distributions
    (0.17 )     (1.57 )     (1.59 )       (0.18 )       (0.14 )       (0.10 )  
                                                 
Net asset value, end of period
    $14.07       $17.99       $20.48         $19.66         $18.24         $16.21    
                                                 
Total Return(2)
    (20.90 )%(5)     (4.94 )%     12.47 %       8.79 %       13.44 %       11.25 %  
Ratios to Average Net Assets(3):
                                                       
Total expenses (before expense offset)
    1.67 %(4)(6)     1.64 %(4)(7)     1.64 %(4)(7)       1.64 %       1.65 %       1.71 %  
Net investment income
    1.15 %(4)(6)     1.56 %(4)(7)     1.72 %(4)(7)       1.07 %       0.76 %       0.48 %  
Supplemental Data:
                                                       
Net assets, end of period, in thousands
     $34,534        $44,664        $48,192          $39,887          $41,621          $41,697    
Portfolio turnover rate
    42 %(5)     42 %     42 %       43 %       48 %       42 %  
(1) The per share amounts were computed using an average number of shares outstanding during the period.
(2) Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(3) Reflects overall Fund ratios for investment income and non-class specific expenses.
(4) Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class during the period. The rebate had an effect of 0.03% for the six months ended January 31, 2009, 0.02% for the year ended July 31, 2008 and less than 0.005% for year ended July 31, 2007.
(5) Not Annualized.
(6) Annualized.
(7) If the Fund had borne all of its expenses that were reimbursed or waived by the Investment Adviser and Administrator, the annualized expense and net investment income ratios would have been 1.65% and 1.55% for the year ended July 31, 2008 and 1.67% and 1.69% for the year ended July 31, 2007.
 
See Notes to Financial Statements

46


 

Morgan Stanley Strategist Fund
Financial Highlights continued
 
                                                         
    FOR THE SIX
                   
    MONTHS ENDED
  FOR THE YEAR ENDED JULY 31,
    JANUARY 31, 2009   2008   2007   2006   2005   2004
    (unaudited)                    
Class I Shares
                                                       
Selected Per Share Data:
                                                       
Net asset value, beginning of period
    $18.10       $20.59       $19.76         $18.34         $16.29         $14.73    
                                                 
Income (loss) from investment operations:
                                                       
Net investment income(1)
    0.17       0.51       0.55         0.39         0.30         0.24    
Net realized and unrealized gain (loss)
    (3.87 )     (1.23 )     2.07         1.39         2.06         1.58    
                                                 
Total income (loss) from investment operations
    (3.70 )     (0.72 )     2.62         1.78         2.36         1.82    
                                                 
Less dividends and distributions from:
                                                       
Net investment income
    (0.20 )     (0.54 )     (0.56 )       (0.36 )       (0.31 )       (0.26 )  
Net realized gain
    (0.05 )     (1.23 )     (1.23 )                          
                                                 
Total dividends and distributions
    (0.25 )     (1.77 )     (1.79 )       (0.36 )       (0.31 )       (0.26 )  
                                                 
Net asset value, end of period
    $14.15       $18.10       $20.59         $19.76         $18.34         $16.29    
                                                 
Total Return(2)
    (20.53 )%(5)     (4.02 )%     13.62 %       9.80 %       14.60 %       12.37 %  
Ratios to Average Net Assets(3):
                                                       
Total expenses (before expense offset)
    0.67 %(4)(6)     0.66 %(4)     0.67 %(4)       0.68 %       0.68 %       0.71 %  
Net investment income
    2.15 %(4)(6)     2.54 %(4)     2.69 %(4)       2.03 %       1.73 %       1.48 %  
Supplemental Data:
                                                       
Net assets, end of period, in thousands
     $24,840        $27,823        $66,753          $58,521          $58,707          $60,177    
Portfolio turnover rate
    42 %(5)     42 %     42 %       43 %       48 %       42 %  
(1) The per share amounts were computed using an average number of shares outstanding during the period.
(2) Calculated based on the net asset value as of the last business day of the period.
(3) Reflects overall Fund ratios for investment income and non-class specific expenses.
(4) Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class during the period. The rebate had an effect of 0.03% for the six months ended January 31, 2009, 0.02% for the year ended July 31, 2008 and less than 0.005% for year ended July 31, 2007.
(5) Not Annualized.
(6) Annualized.
 
See Notes to Financial Statements

47


 

Morgan Stanley Strategist Fund
An Important Notice Concerning Our U.S. Privacy Policy (unaudited)
 
We are required by federal law to provide you with a copy of our Privacy Policy annually.
 
The following Policy applies to current and former individual investors in Morgan Stanley Advisor funds. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law.
 
We Respect Your Privacy
We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as “personal information.”
 
1.  What Personal Information Do We Collect About You?
To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources.
 
For example:
•  We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us.
 
•  We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources.
 
•  We may obtain information about your creditworthiness and credit history from consumer reporting agencies.
 
•  We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements.
 
•  If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer’s operating system and Web browser, your use of our Web sites and your product and service preferences, through the use of “cookies.” “Cookies” recognize your computer each time your return to one of our sites, and help to improve our sites’ content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies.

48


 

Morgan Stanley Strategist Fund
An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued
 
 
2.  When Do We Disclose Personal Information We Collect About You?
To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law.
 
A. Information We Disclose to Our Affiliated Companies.  We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law.
 
B. Information We Disclose to Third Parties.  We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to nonaffiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose.
 

3.  How Do We Protect the Security and Confidentiality of Personal Information We Collect About You?
We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information.

49


 

(This Page Intentionally Left Blank)
 


 

(This Page Intentionally Left Blank)
 


 

Trustees
 
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid
 
Officers
 
Michael E. Nugent
Chairperson of the Board
 
Randy Takian
President and Principal Executive Officer
 
Kevin Klingert
Vice President
 
Amy R. Doberman
Vice President
 
Carsten Otto
Chief Compliance Officer
 
Stefanie V. Chang Yu
Vice President
 
Francis J. Smith
Treasurer and Chief Financial Officer
 
Mary E. Mullin
Secretary
 
Transfer Agent
 
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
 
Independent Registered Public Accounting Firm
 
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
 
Legal Counsel
 
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
 
Counsel to the Independent Trustees
 
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
 
Investment Adviser
 
Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue
New York, New York 10036
 
 
The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon.
 
This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund’s Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS.
 
This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing.
 
Morgan Stanley Distributors Inc., member FINRA.
 
 
(c)  2009 Morgan Stanley
 
 
[MORGAN STANLEY LOGO]
[MORGAN STANLEY LOGO]
 
 
INVESTMENT MANAGEMENT
Morgan Stanley
Strategist Fund
 
(Morgan Stanley Graphic)
Semiannual
Report
January 31, 2009

SRTSAN
IU09-01173P-Y01/09


 

Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
(a) Refer to Item 1.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.

 


 

Item 11. Controls and Procedures
(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.
(b) There were no changes in the registrant’s internal control over financial reporting that
occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) Code of Ethics — Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT.

2


 

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Strategist Fund
/s/ Randy Takian
Randy Takian
Principal Executive Officer
March 19, 2009
     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Randy Takian
Randy Takian
Principal Executive Officer
March 19, 2009
/s/ Francis Smith
Francis Smith
Principal Financial Officer
March 19, 2009

3

EX-99.CERT 2 y74551exv99wcert.htm EX-99.CERT: CERTIFICATION EX-99.CERT
EXHIBIT 12 B1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATIONS
I, Randy Takian, certify that:
1.   I have reviewed this report on Form N-CSR of Morgan Stanley Strategist Fund;
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

4


 

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: March 19, 2009
/s/ Randy Takian
Randy Takian
Principal Executive Officer

5


 

EXHIBIT 12 B2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATIONS
I, Francis Smith, certify that:
1.   I have reviewed this report on Form N-CSR of Morgan Stanley Strategist Fund;
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

6


 

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: March 19, 2009
/s/ Francis Smith
Francis Smith
Principal Financial Officer

7

EX-99.906CERT 3 y74551exv99w906cert.htm EX-99.906CERT: CERTIFCATION EX-99.906CERT
SECTION 906 CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Morgan Stanley Strategist Fund
     In connection with the Report on Form N-CSR (the “Report”) of the above-named issuer for the period ended January 31, 2009 that is accompanied by this certification, the undersigned hereby certifies that:
1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.
         
     
Date: March 19, 2009  /s/ Randy Takian  
  Randy Takian
Principal Executive Officer 
 
 
A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Strategist Fund and will be retained by Morgan Stanley Strategist Fund and furnished to the Securities and Exchange Commission or its staff upon request.

8


 

SECTION 906 CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Morgan Stanley Strategist Fund
     In connection with the Report on Form N-CSR (the “Report”) of the above-named issuer for the period ended January 31, 2009 that is accompanied by this certification, the undersigned hereby certifies that:
1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.
         
     
Date: March 19, 2009  /s/ Francis Smith    
  Francis Smith
Principal Financial Officer 
 
 
A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Strategist Fund and will be retained by Morgan Stanley Strategist Fund and furnished to the Securities and Exchange Commission or its staff upon request.

9

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-----END PRIVACY-ENHANCED MESSAGE-----